Last New Year’s Eve day, just before officially rising to chief executive officer of Tanger Factory Outlet Centers, Stephen Yalof took a road trip with his wife and dog.
He drove from New York City to a house he rented in Jupiter, Fla., and along the route, walked through eight Tanger centers over the course of three days. “I was excited to see that all of the centers were dog-friendly. We have a big golden retriever who appreciates the lush landscapes and parking lots.”
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He also felt reassured witnessing some serious shopping. “When you see lines outside the stores, you know the customer is there to buy,” Yalof said. “Outlets are outpacing other forms of brick-and-mortar. That’s what I saw as I walked these shopping centers.”
Amid the pandemic, Tanger outlet centers have an edge over other shopping venues. The value image is strong. They’re open-air settings. And they are situated near vacation destinations and second homes, like Tanger Riverhead by the Hamptons and Tanger Hilton Head, in South Carolina. They’re both areas where people have flocked to over the past year to get away from dense urban hubs plagued by high counts of COVID-19 cases.
In recent months, Tanger has showed signs of recovering from the impact of the coronavirus. Tanger pretty much broke even in the fourth quarter ended Dec. 31, reporting $300,000 in income compared to a $12.1 million loss a year ago and improving shopper traffic and rent collections. The fourth quarter was heavily impacted by the pandemic with 317,000 square feet of space opening up due to retail tenant bankruptcies and restructurings, for a total of 903,000 square feet that turned vacant during 2020.
“Traffic was approximately 90 percent of prior-year levels during the fourth quarter and in January, improved to more than 99 percent for domestic centers,” said Yalof, who joined Tanger in April 2020 as president and chief operating officer after having served as president of Simon Premium Outlets, and became Tanger’s CEO on Jan. 1.
With the pandemic, there’s heightened pressures on the business, particularly involving rent collections and filling vacancies. Lease renewals will likely lead to terms more favorable to tenants, and less so for the landlord. Tanger’s stock performance has been volatile.
Yet analysts credit Tanger for having a healthy balance sheet and maintaining liquidity and credit ratings despite retail turmoil. They also like its positioning, as the nation’s only pure play outlet center real estate investment trust, relative to enclosed malls where consumer concerns over catching COVID-19 are greater, and the fact that Tanger is not oversupplied with properties. Tanger owns, or has an ownership interest in, 34 centers in 20 states and three in Canada, totaling 13.7 million square feet.
“COVID-19 has really taught us a new way to look at our business,” Yalof stressed. “We’ve walked away with a great number of learnings. There are ways where we can improve on the existing model.”
On his agenda: bringing a greater digital dimension to the business with more products available to see online; offering categories not sold before at Tanger centers, and extending the “dwell time” of shoppers. The longer they stay, the more they purchase.
He’s also hired consultants to layer on an “elevated” level of outlets, and shifted to a culture of local leasing and local marketing, from what’s been solely a centralized approach.
“Unfortunately, there have been a lot of brand restructurings and vacancies creating some vacancy. I see occupancy as opportunity. We’re beating the bushes looking for the next retailer that is going to make a big play in the outlets.”
He cited a handful of brands new to the outlet setting that last year created pop-ups at Tanger properties — Lafayette 148, Alex Mill, Psycho Bunny, J. McLaughlin and Robert Graham. “We’re hoping that their success will lead to long-term commitments,” Yalof said. “Conversion rates with pop-ups are quite good and it’s a low cost to stand a store up.”
Lululemon, Vineyard Vines and Tory Burch started as pop-ups and graduated to long-term leases, Yalof said. Gap Inc. brands, PVH Corp., Ascena Retail Group, Under Armour Inc., American Eagle Outfitters Inc., Nike Inc., Tapestry Inc., Carter’s, Hanesbrands Inc. and Capri Holdings Ltd. — owner of Michael Kors, Jimmy Choo and Versace — are Tanger’s top 10 tenants.
“We are rethinking a handful of our shopping centers to support a more elevated tenant mix that would also lean heavily into digitally native brands,” said the ceo. “There are customers who might be intimidated to shop top fashion brands on Worth and Madison Avenue. A luxury retailer in an outlet environment is far more approachable. There is an aspirational customer with a big capacity to spend money.…We think we have four or five centers that can support a more elevated retail mix. We are working with one of the top luxury retail agencies, to help up drive more luxury retail to our centers.
“To build dwell time we have to bring newness to our customers to get those multiple trips. We are doing that by enhancing our reach with retailers in the entertainment and experiential space, and in food and beverage.”
At Tanger Outlets in Sevierville, Tenn., “We had a chronic vacancy we filled with a moonshine store, the Smith Creek Moonshine Distillery. Moonshine tasting [in the South] is as iconic as wine tasting in Napa Valley. It’s a great, entertaining experiential store where you can taste, buy and learn. It resonates really well.” Another Smith Creek Moonshine shop operates at Tanger’s outlet center in Branson, Mo.
Yalof said in the Hilton Head, S.C., outlet center, a deal was signed with Nantucket Meat and Fish Market, expected to open later this spring, and some Tanger centers have miniature golf. “We’re thinking out of the box a little with [extending] customer dwell time the endgame.
“What we have realized, even before COVID-19 but definitely expanded by COVID-19, is that people like to window shop online. We believe 90 percent of all transactions in a retail store actually started online or on a mobile device where the customer did that early research,” Yalof said. “We have begun to improve the level of information we can share, showing them product they can find, messaging the different discounts and promotional strategies we use, and calling out retailers sharing the cadence of delivery when they share that with us, so customers can see online what product they can actually buy. Brands are now sharing product with us. We want to build that digital part of the business — the window shopping online. We want to speak to shoppers on a more personalized level. If your favorite brand is Nike, the brand messaging winds up in your inbox.”
To further the effort, last month Craig Wise, a former Delta Airlines director of international distribution and digital, became Tanger’s senior vice president of digital transformation, a new role at the company.
“These are things that we have started to create but we’ve got plenty of bandwidth to improve upon,” said Yalof.
With primarily “nonessential” retail outlets occupying the centers, Tanger had to abide by government shutdown mandates, but in June, Tanger tested virtual shopping at its property in South Carolina whereby a customer service representative would, by appointment, shop multiple stores on behalf of a consumer, and build a basket. “It was berthed pretty innocently,” said Yalof. “I needed a pair of Adidas track pants, so my general manager from Myrtle Beach outlet center became a virtual shopper for me.”
That led to Tanger’s virtual shopper service enabling customers to build a basket from multiple stores to purchase online through the virtual shopper interaction, and ship to home or pick up curbside.
The outlet business, Yalof said, is based on the thrill of the hunt. “Finding a whole bunch of Polo cashmere sweaters at $100 in the back of the store, it feels like you hit the jackpot. That customer is willing to go from store to store for that.
“But one of the things we are learning is that in modern days, people want a purposeful shopping trip. They’re not necessarily looking for that window-shopping experience. A customer wants to know that the product is going to be there before they make that shopping trip.” That bit of information, “is an important thing to bring to them,” said Yalof.
So is food and beverage.
The Riverhead, N.Y., outlet, the second largest in the portfolio at 750,000 square feet, has limited eating options. “Unfortunately at a shopping center like in Riverhead, the local ordinances only permit you to do so much,” noted Yalof. “But we are going to get very creative with food across the portfolio. We are working on a partnership which would give us the opportunity to provide a lot of local fast foods, best-in-class categories that exist in a particular geography.”
There’s been a significant change in the approach to leasing. “With our leasing reps, we are leaning very heavily on them to identify local retailers that are compatible to our shopping centers, helping to identify short-term, pop-up, experiential and entertainment tenants. That’s a field-driven directive,” Yalof said.
In the last four months, two former Simon executives were brought in — Leslie Swanson, executive vice president, to oversee the operations of Tanger’s outlets, including driving center occupancy and developing revenue opportunities, and Deanna Dancy, vice president of field marketing, a new role in the company to develop on-site “customized” digital, social media, promotional, public relations and community strategies to drive traffic, sales and profits at Tanger locations.
“We are still doing our national leasing from Greensboro, N.C.,” where Tanger is based. “Now our local leasing and marketing are being done at the field level,” Yalof explained. “Our field management was very centralized, which for a long time was a great way to run the business. But I come from a place where we ran our businesses in a decentralized manner.”
Asked if Tanger is considering developing any additional outlet centers, Yalof replied, “There is 7 billion square feet of retail space in the U.S. but only 70 million square feet of outlet. There are some markets where we could definitely open an outlet center. We have identified a 280,000-square-foot location in Nashville. We have been waiting to get a certain percentage of the spaces leased,” before moving forward on the project. Retailers considering opening outlets in a center view the land and the surroundings before making a commitment. With COVID-19, retailers have held back from traveling, delaying the leasing activity. Typically, construction on a project doesn’t commence until 50 to 60 percent of it is leased.
“What makes Tanger stand out, are how well the shopping centers are maintained and managed,” said Yalof. “What was also always a standout to me was the Tanger Club loyalty program and the amenities. Tanger has a long legacy of very loyal customers. Those are foundation points that really spoke to me when I made my decision to come to work here,” said Yalof, who before heading up Simon Premium Outlets worked as Ralph Lauren’s head of global real estate and leasing Gap Inc. stores in malls, outlets and on street locations around the world.
“My outlet journey has taken me around the world. I’ve been to every outlet center in the world,” Yalof said.
Most memorable, he said, are Simon’s Woodbury Common in Central Valley, N.Y., and Bicester Village outside of London, owned by Value Retail. “They are the gold standard, in the look, the feel, the shopper services, and the list of tenants at each.” Where there is a need or opportunity, “It’s something I am going to reach for at Tanger.”